Washington (CNN) - A Democratic source familiar with the talks tells CNN they have hit a “major setback” because Republicans are now insisting that any fiscal cliff deal include “chained CPI," which Democrats consider a “poison pill.”

The Democratic source says they understand the president offered this in talks with House Speaker John Boehner, but Democrats say that was in the context of a larger deal - in exchange for changes to the way the debt ceiling is approached - which is not in the plan anymore.Follow @politicalticker

Chained CPI would change the way Social Security benefits are adjusted for inflation, effectively meaning Social Security recipients would receive less money over the years.

This Democratic source did not want to be identified because of the closed nature of the talks, but was clearly giving the information to CNN to make public the Democrats’ point of view and push the Republicans to give in on this high stakes issue.

The source also told CNN that Democrats are currently “going outside their comfort zone” in these talks with regard to tax rates - keeping tax rates in place for higher income households than the president wants. The source also said Democrats are negotiating with Republicans on extending the current lower estate tax rate, a big issue for many Republicans as well as moderate Democrats.

A Senate Republican leadership source responded by pointing to the president’s comments in an interview that aired Sunday suggesting he is willing to look at chained CPI “in pursuit of strengthening Social Security for the long term.”

Democrats, however, do not see the mini-deal they’re talking about now as a long term prospect with regard to entitlements.

This source further said that they will decide by early Sunday evening whether to pull the plug and put the fallback bill on the floor, a bill that keeps tax rates in place for those making less than $250,000, fixes the Alternative Minimum Tax, includes the so-called Medicare doc fix, and extends unemployment benefits.

Republican Leader Mitch McConnell said on the Senate floor Sunday that he has placed a call to Vice President Joe Biden to see if "he could help jump-start negotiations on his side." Two sources confirmed that McConnell and Biden have spoken.

"I'm interested in getting a result here," he said. "There's no single issue that remains an impossible sticking point. The sticking point appears to be willingness, an interest, or frankly the courage to close the deal. I want everyone to know I'm willing to get this done, but I need a dance partner."

Following his remarks, Senate Majority Leader Harry Reid spoke on the floor, saying he and his staff haven't been able to come up with a counterproposal.

"I had a conversation with the president and at this stage we're not able to make a counteroffer," Reid said.

As for McConnell's comments about working with Biden, Reid said, "I wish them well."

The majority leader added he will continue to work on another offer and will be able to make a new pitch "perhaps as the day wears on."

"I will say this: I think that the Republican leader has shown absolute good faith," Reid said. "It's just that we're apart on some pretty big issues."

Not long after, Reid told reporters that "they're making progress."

"At this stage we don’t have a deal and that’s an understatement," he added.

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MJW

I have not heard anyone mention that last year in the debt ceiling negotiations, John Boehner's comment was "I received 98% of what I wanted, what's not to like about that?" So this time he is not getting the 98% and he took up his balls and went home...what a coward? It is the same argument with these republicans " my way or no deal." If John Boehner's speakership job is more important to him than the fiscal cliff of the US, he should not be Speaker. The entire GOP party is tied to Grover Norquist and those crazy tea partners . They find themselves in this delema and trying to blame the President. They are in such disarray , just today I am hearing he is not leading to he is not a senator so he should leave the discussions to congress. What do they really want?